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Flying Low: Ryanair

Can Ryanair really rebrand itself as the caring carrier?

 

Ryanair is on a charm offensive. Has outspoken CEO Michael O’Leary seen the light, or is it just a ruse to clear the way for an assault on the long haul and business markets? Chris Middleton and Stuart Lauchlan investigate.

FULLY UPDATED WITH 2014 RESULTS

LEADERSHIPRyanair has long been the butt of jokes about its no-frills service and ‘spend a penny’ surcharges, but the low-cost airline remains Europe’s number-one carrier, measured by scheduled passenger traffic. In fiscal 2013, the County Dublin-based airline transported 19.7 million more people than budget rival, easyJet, benefiting from the ongoing enlargement of the European Union and a broader base of operations.

But despite its success in unitary terms, the airline has been facing a tough strategic challenge, particularly within the UK, and there is a growing urgency to convince its customers that it does care, and that it puts their interests first.

Michael O'Leary

Ryanair’s maverick CEO Michael O’Leary.

At the heart of Ryanair’s challenge is the cultural heritage of air travel itself – specifically, passengers’ attitudes to flying and the baseline experience that they expect from any international carrier, low-cost or otherwise. In Western Europe, for example, increasing numbers of people regard taking a short-haul flight as akin to getting on a bus or train – and this is doubly the case within the US. In the UK, however, our insularity means that air travel retains something of the cachet that it had in the jet-setting 1950s and 60s, when its image was aspirational and glamorous.

Our dominant cultural reference points for air travel remain luxury and exclusivity, even if the reality has long been different on many routes and for many types of passenger. Arguably, that perceived mindset is precisely what Ryanair has been trying to change for years, through a series of scurrilous, press-baiting campaigns. The problem is, it has not succeeded.

In one man’s image

Ryanair has long been synonymous with the combative, Ratner-esque outbursts of its maverick CEO Michael O’Leary. However, in recent years the mismatch between its no-frills approach and customers’ baseline expectations has begun to pose a problem for the Irishman, even as the company has strived to get people to think about air travel in a different – and perhaps more realistic – way.

In a global economic downturn, a broad range of organisations can succeed by giving people the option to save money, but in the long term, any company’s greatest assets – and its best advertising tools – are its own customers. This is true for airlines far more than for most types of business, particularly in an age in which people share their experiences on social media.

Ryanair has long ignored the fact that while people accept and appreciate low-cost, no-frills travel, their cultural baggage compels them to want something more. Not only that, but everyone wants to feel valued and appreciated, because feeling cared for is core to the experience of feeling safe. In the air, those emotional responses still count for a lot.

But these are not the only reasons why Ryanair’s controversial attempts to change passengers’ mindsets over the years have met with limited success.

It’s the economy, stupid…

Global economic fragility has made customers of every type of business disloyal and less tolerant of poor levels of service, regardless of whether a company is offering a budget, mass-market, or luxury/aficionado experience. Indeed, when money is tight people appreciate good service even more, because it exceeds their reduced expectations.

After years of controversy, the message has finally reached Ryanair’s board, with CFO and Deputy CEO Howard Millar admitting that its senior management had been “asleep at the wheel”.

In 2014, CEO O’Leary has been on a charm offensive in an effort to convince customers that their custom and loyalty matter – a major turnaround for a man who has long courted controversy in exchange for column inches (albeit in an attempt to explain the grim logistics of budget travel).

But his attempts to win over customers have not been without his trademark sense of humour: Ryanair’s ‘Always getting better’ customer campaign kicked off with a picture of him cuddling a puppy.

“There is maybe some kind of skepticism as to whether it’s real or just a publicity stunt on our part,” he said at the launch. “This is not some sort of warm, cultural rebranding exercise. There is kind of a myth out there that Ryanair is immovable. We may be a little bit slow to change, but once we get the message, nobody changes faster or quicker than we do. That comes from having a very flat management structure and a pretty young average age within the company.”

That said, the company’s most recent results [see below] suggest that passengers sincerely want a warm, cultural rebranding exercise, and this is a company built in the image of one man, its current CEO, who may not have the personality to sustain that for long.

Personality crisis

Building a company in the image of a single, charismatic person can be an asset in boom times, but a curse if the market begins to turn. While rival easyJet has – successfully or otherwise – extended its ‘easy’ brand and bold design into other markets, Ryanair is suffering because its own core values are unclear, beyond a no-frills approach at knock-down prices. All the obvious candidates for brand extensions demand that quality are placed first.

Visually, the airline’s identity is also in desperate need of a rethink.

2014 is, of course, the year in which the airline had originally planned to launch a transatlantic rival to the likes of Virgin and British Airways, and long-haul carriers succeed or fail on their quality of service and their motivated, friendly staff.

That strategy has been pushed back to 2019 at the earliest, claims O’Leary, suggesting that the company is giving itself a five-year window to rebuild its reputation among its short-haul customers before aiming at the lucrative long-haul market.

Ryanair vs easyJet

Ryanair and easyJet are the top two budget carriers in Europe.

So is the strategy working? Initially, it looked as though Ryanair had left it too late to reengineer its reputation. In the year ended 31 March 2014, profits had slipped by six per cent to €523 million. However, in the quarter to 30 June 2014 – which included the lucrative Easter period – profits had soared by 152 per cent to €197 million, with a four per cent uptick in passenger numbers. On this evidence, the rebranding campaign has been successful.

O’Leary has responded with an uncharacteristic show of restraint: “We would strongly caution both analysts and investors against any irrational show of exuberance in what continues to be a difficult economic environment,” he said. “We expect [the second half] to be characterised by a much softer pricing environment as many competitors are lowering fares.”

Ryanair says that its strategic realignment is genuine, and built on improving the customer experience whenever and wherever passengers interact with the company. It includes a significant investment in overhauling what the company calls its “clunky” website, and introducing the MyRyanair customer registration service.

The latter is designed to allow users to register and store personal and payment details – simple stuff, perhaps, but something that had long been missing from Ryanair’s customer relationship arsenal.

Mobile boarding passes have followed, as well as a much-publicised decision to allow a second item of hand-luggage into the cabin. Next up – logically – is a business-traveller offering, designed to tap into that lucrative international market.

Nevertheless, an outstanding challenge for the company is that the press remains keen to expose every shortcoming and customer horror story, which means that the company has to deliver much more than a charm offensive and a website refresh.

Every airline has its horror stories, but O’Leary’s historic use of the press to raise his own profile has left an unfortunate strategic legacy: journalists want to keep those stories coming. That means Ryanair’s every move will be scrutinised and the reality compared with the promise – a good thing, as far as customers are concerned.

The company has a real opportunity to do something amazing – to make the world think differently about it – if it genuinely has the will to do so. That should be a challenge for any business strategist to relish.

However, it has already emerged that the second hand-luggage item policy only applies to the first 90 people boarding each plane, for the simple reason that there isn’t enough room in the overhead lockers for everyone to carry on two bags. This means that half of the 189 passengers on a full flight face a last-minute baggage check-in.

In it for the long haul

But this is a long-haul journey for the short-haul airline, and O’Leary insists that there are early signs of a turnaround in customer attitudes. “On the customer experience side, we moved to allocated seating, and a much simpler, easier-to-use website with a fare-finder facility, which customers are really responding very favourably to,” he says.

“Our website, which was worst-in-class, is now moving very rapidly to becoming best-in-class. You can now get through it very quickly to make a booking.”

Indeed, O’Leary claims that the fare-finder function is proving so popular that its closest rival is now playing catch-up. “We note that one of competitors – easyJet – recently announced their plans to copy our fare finder. But they won’t have it for a number of months yet,” he adds.

Kenny Jacobs

Ryanair CMO Kenny Jacobs joined in January 2014.

Arguably, the most tangible change at Ryanair to date has been the appointment of its first Chief Marketing Officer, Kenny Jacobs – a man whose principal challenge may be managing his boss in the months ahead.

While, in the past, Ryanair has found it easy to court the press, it has usually been because of O’Leary’s one-man campaign to bait the company’s own customers. Famously, he once said: “People say the customer is always right, but you know what – they’re not. Sometimes they are wrong and they need to be told so.”

He also said: “Nobody wants to sit beside a really fat bastard on board. We have been frankly astonished at the number of customers who don’t only want to tax fat people, but torture them.”

And then there was the ‘toilet tax’: “One thing we have looked at is maybe putting a coin slot on the toilet door so that people might actually have to spend a pound to spend a penny in the future. If someone wanted to pay £5 to go to the toilet I would carry them myself. I would wipe their bums for a fiver.”

Clarksonian economics

How many of those comments represented a genuine viewpoint and how many were calculated, Clarkson-esque press baiting is unclear, but while Jeremy Clarkson’s core business is himself, O’Leary’s is running a publicly listed international company. Arguably, he has done more than most CEOs to reveal the margins and mechanics of running a budget airline.

Either way, CMO Jacobs will want to make his mark and give the airline’s image a makeover. Transforming public perceptions is surely the task that marketing professionals most enjoy.

Quite which way he will turn remains unclear, as his CV reveals an intriguing mix of the low end and the high-end corporate, with stints at Moneysupermarket.com, Tesco, Metro Cash and Carry, Accenture, and Procter & Gamble. Either way, Jacobs’ job is to establish a more formal and responsible customer-outreach programme.

That will be heavily based on social media, as well as on traditional TV and billboard advertising. To make it work, Jacobs has been given a 2014 marketing budget of €35 million – well over three times 2013′s figure.

Flexi business

CEO O'Leary

O’Leary: “Clarksonian”?

An immediate priority is to win a bigger share of the business traveller market for its short-haul services, with a new professional flexi-ticket that allows for changes to itineraries. Business travellers will also be exempt from the old policy of putting the customer in his or her place, suggests O’Leary.

“If you are traveling on one of our flexi-fares and there is an issue, we will resolve that issue in your favour,” he says – begging the question as to how other passengers will be treated.

“We are not going to be arguing. If you are one of our flexi passengers, we are not going to be arguing which of your bags is one kilo over the extra. We will be identifying you as a premium customer and trying to look after you as a premium customer.”

The strategy is to boost the number of business-class passengers flying from key hubs and then to grow market share organically.

“What’s misunderstood about our business is we already have about 20 per cent of our passengers travelling on business – in fact, it’s slightly higher than that,” continues O’Leary. “What we don’t have is a big percentage of business passengers at an airport like Stansted, or at Dublin, where we haven’t focused on those business schedules.”

As the Strategist‘s in-depth report on Volkswagen recently revealed, a number of mass-market conglomerates are currently most successful in the niche, high-end parts of their business.

As for easyJet, Ryanair has two things in its favour, claims O’Leary: “First, we have much lower fares and, second, we have access to far more airports than easyJet does. They have a relatively narrow operation focused largely across a couple of airports, like Gatwick and the Paris airport [sic]. In markets where we come up against easyJet, they tend to retreat from competition with us.”

Easy does it

Confidence aside, O’Leary will be conscious that the tail winds have appeared to be in easyJet’s favour. Ryanair may have carried more passengers in fiscal 2013 – 81.7 million to easyJet’s 61.8 million – but Ryanair’s year-on-year growth was three per cent to its rival’s 3.5 per cent.

Despite this, Ryanair confidently predicts that its full-year 2014 profits will be higher than analyst expectations, hitting a possible altitude of €650 million: a year-on-year increase of €120 million. Its bold strategy has worked in the short term, but there are a lot of ‘Ryanair-bashers’ waiting to see if that flight plan sticks to schedule. TS

The Strategist says

Ryanair’s strategy to get closer to its customers and improve the flying experience is a wise one in the era of social media, and the company is putting its money where its mouth is after years of press- and customer-baiting campaigns. However, the hidden strategy within the short-haul customer campaign may be a long-promised move into transatlantic routes and business services, a strategy that will only succeed if it wins sustained customer support and approval. In the short to medium terms, the company’s new marketing team needs to manage the outspoken CEO to create a deep change in perceptions. But the opportunity is there to grow a higher-end niche brand within the mass-market, low-cost parent.

 

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